Dalal Street takes taper in stride

Indian equity market traded cautiously ahead of the crucial meeting of the US Federal Reserve on Wednesday night that was expected to announce further tapering of the bond-buying programme.

Analysts told Financial Chronicle that Fed decision becomes important in the backdrop that its bond-buying programme has been a source of liquidity for most Asian and emerging markets, including India since last year.

Pausing ahead of the Fed meet, Indian equity benchmark S&P BSE Sensex closed flat at 20,647.30, a loss of only 36.21 points, while NSE’s Nifty index closed 6 points down at 6,120.25.

Vinod Nair, head of fundamental research at Geojit BNP Paribas Financial Services, said, “US Fed is most likely to announce a further $10 billion reduction in bond buying programme.”

“If the outcome is in line with expectation, the market is likely to shun volatility and find a firm positive course,” Nair said.

Mumbai-based stock broking firm India Infoline said in a report, “The Fed’s policy announcement will also drive sentiment globally on Thursday, traders and investors also preferred to remain on the sidelines ahead of the F&O expiry.”

Last month, Fed reduced its bond-buying programme by $10 billion bringing it down from $85 billion a month to $75 billion a month. Last month, Fed reduced its bond-buying programme by $10 billion bringing it down from $85 billion a month to $75 billion a month.

The market witnessed yet another volatile trading session on Wednesday. After opening with a gap up, the market was unable to hold on to its early gains.

In fact, the indices shed all the gains amid selling pressure witnessed in metals, banking and realty stocks. Even the small-cap stocks were under pressure.

FIIs have been net buyers of Rs 12,365 crore equities or $2.02 billion in January so far, as per Sebi data. On Wednesday, they turned net buyers of equities worth Rs 250.48 crore after being net sellers in the previous two trading sessions. Domestic institutions sold equities worth Rs 16.87 crore.

“We do not expect domestic and global markets to react very negatively to a reduction of $10 billion in the Fed’s monthly bond buying programme, as it is largely expected. A lower tapering and a dovish commentary could prop-up markets,” said Rajiv Mehta, AVP for research at IIFL.

A poll of 78 economists on Bloomberg had expected the Fed to cut its monthly treasury purchases to $35 billion, while reducing mortgaged backed security (MBS) purchases to $30 a billion. The poll had included expectations from ABN Amro, BofA Merrill Lynch, Credit Suisse, Moody’s investors Service and JP Morgan Chase.

“The market had factored in a slash in bond buying by up to $10 billion a month. It would create panic selling if Fed announces more than $10 billion in monthly cuts. A positive announcement of say $5 billion, or status quo on policy rates could be cheered by market,” said Sudip Bandyopadhyay, CEO and MD at Destimoney Securities.

US stocks were positive overnight before the outcome of US central bank meet. While jobless claims for the week ended January 18 declined to 326,000 against a survey of 330,000, continuing claims as of January 11 had climbed to 3,056,000.